College Affordability

The Asset Building News Week is a weekly Friday feature on The Ladder, the Asset Building Program blog, designed to help readers keep up with news and developments in the asset building field. This week's topics include postal banking, the safety net, inequality, and education.

The tuition discount rate (institutional grant dollars as a share of gross tuition and fee revenue) for first year students at private, non-profit, four-year institutions has increased to 44.8% for the 2012-2013 academic year and is predicted to rise to over 46% in 2013-14, according to a recent report from the National Association of College and University Business Officers. Colleges and universities use tuition discounting strategies as a way to aid students who might otherwise be unable to pay the “sticker price” to attend. Tuition discounting is also a strategy that is used to increase enrollment and attract talented students. It has recently become especially important as 17% of institutions saw a drop of more than 10% in their freshmen enrollment from Fall 2012 to Fall 2013.

Among the report’s other noteworthy findings:

87.7% of freshmen received an institutional grant in 2012-13, a figure that is projected to grow to 88.9% in 2013-14.

The average institutional grant in 2013-14 is projected to cover over half of tuition and fees.

Due to high discount rates, the average growth in tuition revenue per freshman has only grown 1.7% in 2012 and is expected to decrease -0.5% in 2013 (both numbers adjusted for inflation).

Over the last 13 years, institutions as a whole have experienced relatively flat net tuition revenue (0.4%) which according to the report, means that gross tuition revenue and other fees have primarily gone back to students in the form of aid.

Among the institutions who responded to the survey (over 400), undergraduate enrollment had decreased at half of them. Reasons cited include families and students having a higher price sensitivity, colleges dealing with increasing competition from other institutions and the decreasing pool of traditional students.

Institutions with increases in enrollment cited better marketing and recruitment strategies as keys to their success.

Out-of-Pocket Net Price for College reviews trends in out-of-pocket net price (the amount families must pay after subtracting grants, loans, work-study and all other aid from the total price of attendance) and total price for families and students in 2011-2012. The brief shows that despite an increase in grant and student loan aid, out-of-pocket expenses increased in 2011-12 from the previous year in all but for-profit institutions. The biggest increase was for students at non-profit, private institutions (net price rose nearly $5,000). Perhaps unsurprisingly, out-of-pocket expenses were higher for each successive income quartile from the lowest to the highest for both dependent (under 24 and financially dependent on their parents) and independent (over the age of 24) students.

According to The Condition of Education 2014 report, 90% of adults ages 25 to 29 had a high school diploma or its equivalent in 2013 (an increase of 4% from 1990) and 34% had a B.A. or higher (an increase of 11% from 1990).

Among the report’s other findings related to postsecondary education:

In 2012, the median earnings for 25-34 year olds with a B.A. degree were more than twice as much as those without high school diplomas.

Total undergraduate enrollment was 17.7 million in fall 2012, an increase of 48% from 1990.

By 2023, undergraduate enrollment is projected to increase to 20.2 million.

60% of all undergraduate students attended 4-year institutions in fall 2012.

Of undergraduate students at 4-year institutions that year, 77% attended full time.

Of undergraduate students at 2-year institutions that year 41% were full-time students.

The average net price of attendance in 2011–12 for first-time, full-time students was $12,410 at public, 4-year institutions, $21,330 at private, for-profit 4-year institutions, and $23,540 at private, nonprofit 4-year institutions.

The percentage of first-time, full-time undergraduate students at 4-year institutions receiving financial aid increased from 75% in 2006–07 to 85% in 2011–12.

Of the 4.7 million students who entered the repayment phase on their student loans in 2011, 10% had defaulted before the end of 2012.

In 2011–12, the average student loan amount of $6,800 represented a 36% increase over the 2000–01 average student loan amount of $5,000 (inflation adjusted).

59% of first-time, full-time students who began at a 4-year institution in fall 2006 graduated within 6 years.

Today, too many families fail to claim higher education tax benefits for which they are eligible. For example, a Government Accountability Office (GAO) study found that one in seven taxpayers—or 1.5 million tax filers—who were eligible for either the Tuition and Fees Deduction or the Lifetime Learning Credit (LLC) in 2009 failed to claim those benefits. Another 237,000 of these filers made a “suboptimal choice,” choosing a tax break that did not “maximize their potential benefits.”

In fall 2011, the U.S. Department of Education quietly tightened the credit check criteria for Parent PLUS loans, a federal program that provides loans to parents to send their children to college above and beyond the federal loans available to students.As a result, many families and higher education institutions were shocked to find that parents approved for the loan one year were suddenly denied the next. Students in the middle of their academic careers found themselves scrambling to cover a much larger portion of their bill upfront.

This blog post is the fourth part in a series that takes a look at recent changes to the credit criteria for Parent PLUS loans and the subsequent effect on colleges and universities. You can find the rest of the series here.

Since making relatively minor changes to the credit check requirements for Parent PLUS loans last year, the Department of Education has been under a firestorm of criticism from historically black colleges and universities (HBCUs) and their lobbying organization, the National Association for Equal Opportunity (NAFEO). According to HBCUs, the impact of the policy change caused a significant decline in enrollments and a huge loss in revenue for their institutions. In an effort to ease tensions, Education Secretary Arne Duncan recently apologized to HBCU leaders at their annual meeting saying, “I am not satisfied with the way we handled the updating and changes to the PLUS loan program. Communication internally and externally was poor. I apologize for that, and the real impact it had.”

But if Secretary Duncan really wanted to apologize to the colleges most affected by the change to Parent PLUS loans, he should have been talking to for-profit colleges, not HBCUs. After all, since the policy change was implemented two years ago, for-profits have lost approximately $790 million dollars more than HBCUs in PLUS disbursements. Why is that? The for-profit sector has a much higher percentage of Parent PLUS borrowers than at HBCUs.

Using recently released data from the U.S. Department of Education’s Office of Federal Student Aid (FSA), I analyzed Parent PLUS loan data from pre-recession 2006 to 2013. From 2009 to 2011, both for-profits and HBCUs saw huge increases in recipients (approximately 50,000 and 15,000 more recipients respectively) and disbursements (approximately $450 million and $156 million respectively). This was the peak of the recession, at a time when family net worth diminished while college prices soared. Parents turned to PLUS loans to help send their children to higher-priced colleges that could not or would not help them fill the gap with institutional aid.

However, since the change to the credit check, both sectors saw huge declines in recipients and disbursements (Tables 1 and 2). From 2011 to 2013, HBCUs experienced a 45 percent decline in PLUS borrowers and a 27 percent decline in PLUS disbursements. The for-profits experienced a much starker decline over the same period. At for-profits, PLUS loan borrowers and disbursements declined 54 percent. In addition, while HBCUs experienced a decline in PLUS recipients over the past five years, their disbursements increased 14 percent. Meanwhile, the for-profit sector experienced a five-year 30 percent decline in recipients and a 33 percent decline in disbursements.

What’s most startling is the overrepresentation of Parent PLUS borrowers at for-profits compared with HBCUs (see Chart 3 and Table 3).2 While HBCUs have been the most vocal opponents of the changes to PLUS loans, they actually make up a very small share of volume in the program. Approximately 2 percent of undergraduates are in HBCUs and these institutions represent between 3 and 4 percent of PLUS borrowers. The data from for-profit institutions, however, show a larger overrepresentation. From 2006 to 2011, the share of for-profit enrollments fluctuated from 7 to 11 percent, but accounted for 16 to 18 percent of total Parent PLUS loan recipients. In other words, Parent PLUS borrowers at for-profit colleges were almost 1.7 times overrepresented compared to their share of enrollment. That’s incredible considering that normally for-profit institutions have been seen as catering to the needs of adult, “nontraditional,” independent students who don’t qualify for Parent PLUS loans. It seems that there are quite a few traditionally-aged, dependent students attending for-profit institutions, and it’s costing their families a lot of borrowed money.

So why aren’t the for-profits crying foul? One reason may be that they are letting HBCUs do it for them. For-profits know that they have been criticized for saddling students with unmanageable debt, and know that complaints about lost revenue from high-cost loans are unlikely to receive a sympathetic ear from the Obama Administration, Congress, or the media. By contrast, HBCUs have strong political connections through the Congressional Black Caucus, a White House initiative located within the Department of Education, and a generally sympathetic ear from the Obama Administration, which secured a total of $850 million from 2010 through 2019 in additional formula money for HBCUs.

So by letting HBCUs make the PLUS loan changes a racially-charged issue, for-profits are able to let a politically popular group seek out changes to the credit check that will help all borrowers, regardless of the institution type. But this approach loses sight of the bigger issue—PLUS loans provide large amounts of intergenerational, inflexible debt to families who may be unable to pay that money back. And continuing to present the issue in terms of revenue lost to schools allows high-cost institutions (especially for-profit institutions) avoid the real issue, which is that their high tuition—enabled by parent PLUS loans—is pricing students out of an affordable education.

Arne Duncan shouldn’t have to apologize to anyone for making a policy change meant to protect students and families. But if he has to apologize to HBCUs, it’s only fair that he apologize to the for-profits as well.

1Also worth noting during this time period was the transition to full Direct lending. Before July 2010, federal loans could be made under two programs—Direct and the Federal Family Education Loan (FFEL) program. The change to Direct Lending saved the government money by cutting out subsidies to loan middlemen. However when the change was made, the number of Parent PLUS loan approvals increased due in part to a discrepancy between how the Education Department defined adverse credit compared with FFEL lenders. In October 2011, the Education Department changed its definition of adverse credit slightly to match what it was under the FFEL program.

2Note that the data on enrollment from 2012 and 2013, during which time for-profit enrollment dropped significantly, are not yet available so we will have to wait to see how both sectors’ share of enrollments and recipients changed during those two years.

Edited 10/9/2013 at 1:17pm to change title.Edited 1/10/2014 at 1:18pm to change the over/under representation data.

Last Friday, the New America Foundation’s Education Policy Program, in partnership with the Lumina Foundation, hosted a “Zero Education Debt” event. Panelists looked at the concept of Income Share Agreements (ISA), a new financial vehicle in which a student completes school with no loans and no debt, but instead agrees to pay an investor (or the government) back a set share of his income for a set number of years.

We started off the event with comments from Jamie Merisotis, president of the Lumina Foundation. Merisotis helped contextualize the topic with a much larger question: how to provide students with access to a high quality, low cost education. New America’s Alex Holt then presented a theoretical framework of Income Share Agreements and where they fit into the existing higher education financial system.

Panel One: Implementing Income Share Agreements

Our first panel focused on practitioners – people who are attempting to implement these plans. The panelists included people implementing plans both in the private market and also via the government. The discussion was lively, with John Burbank, Executive Director of the Economic Opportunity Institute, defending the proposed Oregon Pay It Forward program that he helped to develop. That plan would be a publicly funded one – the first in the U.S.

Others on the panel discussed alternate arrangements for private Income Share Agreements. We had representatives from the major existing private ISA providers: Dave Girouard of Upstart; Tonio DeSorrento, formerly of Pave; Miguel Palacios of Lumni; and Gordon Taylor of 13th Avenue Funding.

Panel Two: Are Income Share Agreements Viable?

The second panel, moderated by Zakiya Smith of the Lumina Foundation, had a more focused policy perspective. Michelle Asha Cooper of the Institute for Higher Education Policy started the session off with a healthy dose of skepticism towards these plans, pointing out that the higher education policy community tends to “become fixated on the next big thing” and offering some concerns of some unintended consequences.

Miguel Palacios, professor at Vanderbilt and cofounder of Lumni, and Alex Holt of the New America Foundation both had a more optimistic outlook towards ISAs, arguing their potential to inject consumer certainty and price signaling into the higher education market. Rohit Chopra of the Consumer Financial Protection Bureau added the unique perspective of a regulator in the space, asking some very useful questions for the audience and the panel to think over.

Given the lively debate from the panels and terrific questions from the audience, we hope this will be the first of many discussions on the topic of Income Share Agreements. Check back with the New America Foundation’s Ed Money Watch and Higher Ed Watch blogs as the debate continues.

Supporters of “merit aid” often defend it as being a middle class benefit. When articles appear that are critical of non-need-based financial aid, they are typically greeted with responses such as this (taken from a forum on College Confidential):

I think that it is ridiculous to cut merit aid. The middle class will be in even more of a bind. The only reason I will be able to afford to go to a good school is if I get merit aid. I'm in the typical middle class FA situation- too "rich" to get FA but too poor to afford college.

Newly-released data by the U.S. Department of Education's National Center for Education Statistics (NCES) show that a student’s chances of receiving merit aid increases as his or her family’s income rises. In fact, students from families making more than $250,000 a year are more likely to receive merit aid than those making less than half of that.

The data in question come from the latest edition of the National Postsecondary Student Aid Study (NPSAS), a nationwide survey of college students that the NCES conducts every four years. The survey provides the most comprehensive information available on how students and their families pay for college.

Overall, one in five students with family incomes of over $250,000 a year obtained merit aid from their colleges in the 2011-12 academic year. That’s compared to about one in seven students from families that make between $30,000 and $65,000, and one in six from families with annual incomes between $65,000 and $105,000.

These results are not entirely surprising. As I’ve written in the past, four-year colleges, both public and private, are increasingly using their institutional aid dollars to compete for students who can otherwise pay full freight. This strategy has been particularly appealing to public colleges and universities of late as a way to make up for declining support from their states.

Indiana University professor Donald Hossler, who served as IU’s vice chancellor for enrollment services for many years, recently explained this strategy to ProPublica. “One of my charges was to go after what I would call pretty good out-of state students,” he said. “Not valedictorians, not the top of the class. Students who you didn’t have to give thousands and thousands of dollars to in order to get them to enroll.”

It’s certainly true that students from middle-income families are benefiting from merit aid. But that shouldn’t obscure the fact that a significant share of recipients are coming from very wealthy families who can certainly afford to send their children to college without the help.

The University of Kansas School of Social Welfare, the Assets and Education Initiative (AEDI), and the KU Social Work Administration and Advocacy Practice are convening a series of events over the next few months about the interplay of assets with upward economic and social mobility. Learn more about the series and RSVP for the first event here.

The first event kicks off next week on September 11 at the University of Kansas. Keynote speaker Dr. Mark Rank, a widely-recognized expert on poverty and inequality, will be discussing his research, including a finding that nearly 60 percent of Americans experience poverty at some point between the ages of 20 and 75. His talk, and the panel discussion to follow, will examine why poverty is portrayed as an individual failing despite its prevalence and structural origins, and how institutions can support (or stop hindering) upward economic mobility.

Check out the details for Wednesday's event below and make a note of the dates of forthcoming events. In particular, note that our Senior Research Fellow, William Elliott, will be speaking at the November event about his work on improving children's educational outcomes through access to savings. The early 2014 events will feature Tom Shapiro, whose work with the Institute on Assets and Social Policy has greatly informed the national conversation on the causes of racial wealth disparities, and Michael Sherraden, whose work laid the earliest foundations of the asset building field.

The series will be available on livestream for those not able to travel to the Lawrence, Kansas area.

With a little bit more than a week until the next round of negotiated rulemaking on gainful employment kicks off on Sept. 9, the U.S. Department of Education today released its initial proposal for the new rule along with reams of supporting data. Higher Ed Watch will be digging into this information over the coming days, but here's what you need to know right now.